Question
SUC Berhad is considering two mutually exclusive pieces of machinery that perform the same task. The two alternatives available provide the following set of after-tax
SUC Berhad is considering two mutually exclusive pieces of machinery that perform the same task. The two alternatives available provide the following set of after-tax net cash flows:
Machine A | Machine B | |
C0 | (RM20,000) | (RM20,000) |
C1 | RM12,590 | RM 6,625 |
C2 | RM12,590 | RM 6,625 |
C3 | RM12,590 | RM 6,625 |
C4 | RM 6,625 | |
C5 | RM 6,625 | |
C6 | RM 6,625 | |
C7 | RM 6,625 | |
C8 | RM 6,625 | |
C9 | RM 6,625 |
Machine A has an expected life of three years, whereas machine B has an expected life of nine years. Assume a required rate of return of 15 percent. You are required to compare the projects by using following methods.
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Calculate the Payback Period for Machine A and B. (4 marks)
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Calculate the Net Present Value for Machine A and B. (6 marks)
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Calculate Internal Rate of Return (IRR) for Machine A and B. (6 marks)
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Calculate the Equivalent Annual Annuity (EAA) for Machine A and B. (6 marks)
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Evaluate which project should be selected? Support your recommendation.
(3 marks)
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